The Federal Reserve last night announced an $85bn rescue package for ailing AIG to prevent the insurer becoming the latest and largest casualty of the credit crunch.
Under terms of the deal authorised with Treasury support, the US Government will take a 79.9% equity stake in the world’s largest insurer.
It is understood the US Government stepped in to make the rescue after last minute talks with private companies failed.
AIG chief executive Robert Willumstad will be removed and the Fed says AIG is likely to sell off parts of the firm to repay its loan.
“The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries,” the Fed statement reads.
“These assets include the stock of substantially all of the regulated subsidiaries.”
The Fed says the interests of taxpayers are protected under the deal.
“The board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,” it says.
Meanwhile, the Federal Reserve yesterday held US interest rates at 2%.
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